Abstract

Wage subsidies have long been used by Governments as part of their active labor market policiesto generate employment for the disadvantaged or to sustain employment during downturns. Thecurrent global financial crisis has seen such policies return to prominence, with many developednations using such policies to try and reduce lay-offs. Nicholas Kaldor (1936), P. Richard Layardand Stephen Nickell (1980), and Lawrence Katz (1998) lay out the economic arguments for sucha policy, and discuss conditions under which a short-term subsidy might have longer-term effectson employment for the targeted individuals.